USD/CAD pair hit a three-week high,the US dollar gained strength

The USD/CAD pair continued its upward momentum for the second consecutive day on Thursday, reaching a three-week high during the Asian session. Bullish factors such as the Federal Reserve's hawkish outlook and a subdued risk appetite have been supporting the US Dollar (USD) and benefiting the USD/CAD pair.

The USD's strength can be attributed to the Federal Reserve's stance, which has been favoring tighter monetary policy. At the June policy meeting, the central bank decided to pause and evaluate the impact of previous rate hikes. However, the recently released meeting minutes revealed a strong possibility of resuming rate hikes in the future, given the persistently high inflation. This optimistic outlook from the Fed has boosted the USD's appeal, consequently acting as a tailwind for the USD/CAD pair.

The surge in US Treasury bond yields overnight, driven by expectations of further policy tightening by the Fed, has also contributed to the USD's strength. Additionally, a generally weaker risk sentiment, exacerbated by disappointing services data from China and concerns of an escalating trade conflict between China and the US, has led investors to seek safe-haven assets, further supporting the USD.

While these factors favor the USD, the Loonie (CAD) has been underpinned by bullish Crude Oil prices. However, the impact of rising oil prices on the CAD may limit the gains for the USD/CAD pair in the near term.

Traders are now eagerly awaiting the release of key US macroeconomic data, including the ADP report on private-sector employment, Weekly Initial Jobless Claims, ISM Services PMI, and JOLTS Job Openings. The performance of US bond yields and the overall risk sentiment will also play a crucial role in driving the demand for the USD. Additionally, monitoring Crude Oil price dynamics will be important in assessing short-term trading opportunities in the USD/CAD pair, particularly in anticipation of the significant monthly jobs data from both Canada and the US, scheduled for release on Friday.

Technical Analysis :

Our preference

Short positions below 1.3330 with targets at 1.3060 & 1.2950 in extension.

Alternative scenario

Above 1.3330 look for further upside with 1.3490 & 1.3650 as targets.